Key Points
- Ethereum (ETH) faces challenges due to inflation and low on-chain fees.
- Bitcoin (BTC) dominance increases despite stable prices and decreasing fees.
The third quarter of the year has been tough for the cryptocurrency market.
The period has been characterized by low on-chain fees, the increasing dominance of Bitcoin, and the struggle of Ethereum with inflation and underperformance.
Ethereum’s Shifting Identity
Ethereum’s identity is changing as it transitions from a deflationary model to an inflationary one.
This shift is causing uncertainty about Ethereum’s role as a cryptocurrency, especially with the rise of layer 2 solutions and the dominance of Bitcoin.
In an article by Lucas Outumuro, head of research at IntoTheBlock, he observed that despite a minor rebound in on-chain fees in September, Ethereum continues to struggle with significant fee reductions that have negatively impacted its performance.
Bitcoin’s Market Share Climbs
On the other hand, Bitcoin’s market share has reached its highest level since April 2021.
Despite its price remaining mostly stable throughout the quarter, Ethereum and altcoins continue to reach new yearly lows.
Simultaneously, Bitcoin’s fees have dropped by 86% over the quarter, indicating a market that is not deterred by this decline.
Outumuro points out the difference between Bitcoin and Ethereum’s price, while both of their fees have significantly dropped, suggests that one of them is being valued as money and the other is more closely tied to its cash flows.
The Impact of the Dencun Upgrade
The Dencun upgrade, which introduced EIP-4844, has significantly affected Ethereum’s economics.
Although it triggered layer 2 transaction volumes, mainnet fees have hit all-time lows, leading to concerns about Ethereum’s deflationary narrative.
Lower fees mean less Ethereum is burnt, which leads to it becoming “inflationary again after the Ethereum community consistently focused on its deflationary path before that,” Outumuro stated.
Furthermore, the ETH/BTC ratio has dropped nearly 30% since the Dencun upgrade, indicating an “identity crisis” for Ethereum.
Currently, Ethereum is trading at $2,390, which is more than 50% below its all-time high from three years ago.